As I have described before, “When I studied statistics, we were told to look for “outliers” – results that appeared to be inconsistent with the rest of the data. If an observation is a potential outlier, you begin an analysis to determine whether a cause can be identified for the spurious result.”
There has been a lot of noise surrounding last month’s Telecom Decision CRTC 2021-181, the review and vary of the Commission’s 2019 Order (Telecom Order CRTC 2019-288) regarding final rates for aggregated wholesale high-speed access services.
The faux outrage alleges that the Commission has suddenly shown a predisposition favouring ‘facilities-based competition’ over ‘services-based’, when in fact, supporting investment has been the position of the CRTC, and the Competition Bureau, and various expert reports, and the Minister of Industry, (or ISED) for nearly 3 decades (since 1992).
So which decision is the outlier?
The discontinuity in wholesale rate policy was found in the rates set in 2019, not the most recent review of that decision issued in May of 2021. Following last summer’s determination by Cabinet (“Canada’s future depends on connectivity”), there should have been no surprise that the CRTC would need to carefully examine its 2019 determination.
It was pretty easy to see that the “outlier”, or statistical anomaly, in wholesale rate-setting was 2019, with hundreds of millions of dollars in windfall rebates and dramatically lowered forward-looking rates that have since been confirmed to be below the carriers’ costs. Looking at the 2019 rates, last August, Cabinet said “the Governor in Council considers that the rates do not, in all instances, appropriately balance the policy objectives of the wholesale services framework and is concerned that these rates may undermine investment in high-quality networks, particularly in rural and remote areas.”
Those who oppose the CRTC’s most recent decision argue that it leads to higher consumer prices. However, Bell Canada has asserted that its wholesale rates will drop by an average of 7%; in the case of wholesale rates from Canadian cable companies, some cost elements are increasing.
There was a time that the independent internet service providers celebrated the CRTC following its processes. Less than 2 years ago, CNOC recognized the need to balance a range of interests in reaching a decision. “The CRTC regulates the market to protect consumers and promote the public interest.”
CNOC’s own press release seemed to recognize that there are many more considerations involved in determining the “public interest” than simply lowering consumer prices. Indeed, there is a public interest cost associated with low, low prices as we have seen in other markets. Canada needs substantial levels of ongoing investment from the private sector to extend the reach of our networks into unserved and underserved areas. Setting wholesale rates too low can result in lowering incentives for rural investment, as I described, and as Canada’s Federal cabinet stated last August.
As CWTA President and CEO Robert Ghiz recently wrote, “Those who discount this balanced approach and argue in favour of one-dimensional policy-making willingly ignore the impact it would have on Canadians’ access to the internet and their ability to participate in the digital world.”
There has been a long-standing recognition that the most sustainable form of competition is found among those companies making the multi-billion dollar annual investments to “deploy, maintain and continually upgrade the physical networks that enable Canadians to connect to the internet.”
For nearly 30-years, Canada’s policy and regulatory frameworks have consistently favoured policies that support investment by facilities-based carriers. Independent ISPs have been able to thrive in this environment, continuing to gain market share with the wholesale rates that were set in 2016 and re-affirmed last month. Wholesale-based ISPs have grown nearly 50% between 2016 and 2019 (the last year covered by official data); with a 10% market share, independent ISPs are attracting about 20% of new customer growth, with the 2016 rates in place.
It is somewhat disingenuous for independent ISPs to endorse the CRTC and its processes when the Commission rules in their favour but call for regulatory reform and heads to roll at the CRTC when determinations go the other way. The Telecom Act has provisions that enable reviews and appeals of decisions.
The system works.
Canada’s future continues to depend on connectivity. Increasing connectivity depends on regulatory stability and a policy environment that continues to favour investment.